New marketing materials for University Square show a reimagined shopping center, with less parking and retail and a cluster of new, freestanding stores or restaurants along Cedar Road.
(Passov Real Estate Group)

UNIVERSITY HEIGHTS, Ohio -- Local brothers Brian and Lance Osborne hope to buy and remake the long-suffering University Square shopping center, three years after bond investors took control of the financially-troubled and vacancy-riddled complex at a key suburban corner.

University Heights City Council got its first look Wednesday night at legislation to clean up a debt snarl that has kept the property, at Cedar and Warrensville Center roads, languishing. The Osbornes, who have signed a letter of intent to buy much of the center and are working on a firmer agreement, aim to revive University Square through demolition and new construction.

If the brothers succeed, they would dramatically reduce the amount of retail space and parking on the site. Their plans call for lopping off the top two floors of the more than 2,000-car garage; razing a large, multi-story retail building along Cedar; opening a handful of freestanding restaurants or stores; and transforming an empty shopping tower on Warrensville Center into a senior-housing complex that will be owned and managed by an unidentified operator.

Retail marketing materials from Passov Real Estate Group also show that one mid-sized store, of up to 40,000 square feet, could fill a void beneath Target.

The existing Target and Macy's stores, owned by the retailers, wouldn't be part of the sale. An Applebee's restaurant - the sole remaining tenant in the main complex - would stay. So would standalone bank branches along the perimeter of the site.

"It's definitely not easy, but we feel the market is very strong. And it's an outstanding corner," Brian Osborne, 37, said during an interview.

He and Lance, 39, hail from a Lake County family with deep roots in real estate. Working from offices in Mentor, they each have their own businesses but are teaming up to take on one of Northeast Ohio's most troubled properties.

A new site plan shows a reimagined University Square, still anchored by Target and Macy's. Developers Brian and Lance Osborne hope to buy and reconfigure much of the long-troubled shopping center.Passov Real Estate Group

Demolition at University Square could start as soon as the spring, Brian Osborne said.

But that timing depends on how difficult it is to unravel a complicated financial structure that dates back to 2001 and that soured years ago. University Square landed upside-down - pulling in nowhere near enough money to pay expenses - as stores closed, a recession set in, rent collections dwindled and the costs of garage repairs and other maintenance rose.

A series of ownership changes capped that downward spiral. In late 2015, investors in bonds tied to the project took charge. To protect their investment, they became the owners of the property, settling a foreclosure lawsuit and raising the possibility of redevelopment.

First, though, the bondholders had to eliminate a roughly $40 million debt backlog that scared developers away. That's what University Heights is trying to enable, through legislation that would wipe out liens tied to special assessments on the property. The legislation is headed to a finance committee hearing next week and could be up a council vote later this month.

As part of the original development deal, the city and the local school district agreed to an arrangement that reallocated new property-tax revenues from the project to debt payment. The original property owners, and any subsequent owners, were required to make payments on bonds used to finance construction, instead of paying higher taxes on the new buildings.

And that requirement held steady, regardless of the shopping center's health. University Heights mandated that the property owners pay special assessments, ensuring consistent debt payments even if the shopping center's value plunged.

As the project foundered, the owners had to cover the shortfalls. Eventually, the debt payments stopped. The delinquencies piled up. Now, with the bondholders serving as both the lender and the property owner, they basically owe $40 million to themselves.

Cuyahoga County collects and distributes the actual property-tax payments and the special assessments. So a first glance at county records makes it look like University Square has piled up more than $40 million in unpaid taxes. In reality, most of that money is earmarked for private investors - not the public. Overdue taxes, city service assessments, interest and fees are a small part of the overall bill.

"This is not any kind of giveaway," University Heights Mayor Michael Dylan Brennan said during the council hearing. "This is not money that will ever be collectible. ... We as a community want to see the University Square property returned to a useful purpose and not continue to be the failed project it has been for several years."

The city has been working with the county and UMB Bank, the trustee that represents the bondholders, to wipe out the assessments. Since University Heights imposed the payment requirement in the first place, the city must take legislative action before the county can act, said Dennis Kennedy, the county fiscal officer.

Separately, the bondholders and UMB hope to work with the Cuyahoga Land Bank to wipe out the delinquent property taxes. Lorna Gleason, a senior vice president at UMB, said a reworked deal also will require approvals from the local school board; the Cleveland-Cuyahoga County Port Authority, which issued the original bonds; Target; and Macy's.

The land bank, which focuses on homes but takes in troubled commercial properties if there's a developer or eventual occupant standing by, is aware of talks about University Square but isn't part of any formal agreement.

"If we can help, we will," said Douglas Sawyer, assistant general counsel for the nonprofit, quasi-governmental corporation.

Gleason acknowledged that there's still a lot of work to do. But eliminating the pileup of debt, interest and penalties will be a substantial step toward putting University Square in the Osbornes' hands - and giving bond investors a shot at recouping some, though nowhere near all, of what they're owed.

"We are closer to getting this thing redeveloped than we have been in this last four years," she said.